Good morning and thank you for standing by. Welcome to Abbott's Second Quarter 2018 Earnings Conference Call. [Operator Instructions] This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; and Brian Yoor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks, and Brian will discuss our performance and outlook in more detail. Following their comments, Miles, Brian and I will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2018. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, through our Annual Report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2017. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. Please note that second quarter financial results and guidance provided on the call today for sales, EPS and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which adjusts to 2017 basis of comparison to exclude the impact of exchange and historical results for Abbott's Medical Optics and St. Jude's vascular closure businesses, which were divested during the first quarter of 2017 as well as the current and prior year sales for Alere, which was acquired on October 3, 2017. With that, I will now turn the call over to Miles.

Okay. Thanks, Scott, and good morning. Today, we reported ongoing earnings per share of $0.73, above our previous guidance range. We also raised our full year adjusted earnings per share guidance and narrowed the range to $2.85 to $2.91, which now reflects 15% growth at the midpoint. All 4 of our businesses exceeded expectations in the quarter and contributed to 8% organic sales growth overall, above our previous guidance range. Over the past several years, we've executed a very deliberate strategy of shaping our portfolio, both adding and pruning. At the same time, we've also invested organically in growth areas that have resulted in game-changing technologies such as FreeStyle Libre and Alinity. These steps have created leadership positions in attractive areas in health care, where innovation makes a big difference for the customers we serve and consequently for our performance. The strong results we're achieving are a direct result of this strategy. Over the past 4 quarters, we've averaged more than 7% organic sales growth, a true differentiator for a company our size. And with synergies from recent acquisitions and our focus on margin expansion, we're able to fully fund our growth opportunities while at the same time, growing earnings significantly faster than sales. We continue to forecast strong performance for the remainder of the year, as evidenced by the fact that we're raising our full year earnings guidance despite the recent strengthening of the U.S. dollar. Clearly, we'd be raising guidance a bit higher if based solely on the underlying performance of our business. I'll now summarize our second quarter results before turning the call over to Brian. I'll start with Diagnostics, where we achieved sales growth of 6.5% in the quarter, including 8% international growth in our core laboratory business. The pace of our Alinity launch in Europe…

Thanks, Miles. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results. Sales for the second quarter increased 8% on an organic basis, above our previous guidance range. Sales in Rapid Diagnostics, which was acquired late last year and is therefore not included in our organic sales growth results, achieved sales of $484 million. Exchange had a favorable year-over-year impact of 1.7% on second quarter sales. During the quarter, we saw the U.S. dollar strengthen versus several currencies, resulting in a less favorable impact on our sales this quarter compared to expectations had exchange rates held steady since the time of our earnings call in April. Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.2% of sales. Adjusted R&D investment was 7.1% of sales, and adjusted SG&A expense was 30.7% of sales. Turning to our outlook for the full year 2018. Based on our strong performance and momentum, we're increasing our organic sales growth forecast to 6.5% to 7.5%. At current exchange rates, we would expect exchange to have a favorable impact of around 50 basis points on full year reported sales, which would be around 170 basis points lower than expectations based on exchange rates in April. In addition, we continue to expect Rapid Diagnostics to contribute sales of a little more than $2 billion. We continue to forecast an adjusted gross margin ratio of somewhat above 59% of sales, which includes underlying gross margin improvement across our businesses. We forecast adjusted R&D investment of around 7.5% of sales and adjusted SG&A expense of somewhat below 30.5% of sales. Turning to our outlook for the third quarter of 2018. We forecast an adjusted…

[Operator Instructions] And our first question comes from David Lewis from Morgan Stanley.

Miles, 2 dynamics that really stand out to us this quarter in addition to, obviously, the stronger organic number. Just international Nutrition recovery and obviously, the Libre progression. So can you just give us some details on sort of the drivers of Nutrition acceleration, the sustainability in the back half of the year? And then Libre, where it is relative to your plan and your comfort with maybe $100 million number in U.S. Libre this year, and I had a quick follow-up.

Okay. In the Nutrition business, I'd say, first of all, we're pleased with the success in performance. It's across the board. It's not in any one place. We've been through pretty detailed reviews and plans by geographic area and so forth. A lot of times, we're talking about Nutrition in terms of either the U.S. or China. In this case, it's actually not concentrated that way. It's really across the board in all the countries we're in. So I'm pretty pleased to see a uniform increase in performance and our plans taking hold and working in a lot of countries internationally. And like a lot of things, it's small things and a lot of them in coordination, blocking and tackling and just doing a better job with our marketing, our positioning in products and so forth. So as far as sustainability goes, I feel like this business ought to be able to perform in a, call it, low to mid-single-digit range on a fairly sustainable basis. And if we can stay in the range we're in, that's pretty good. I feel pretty good about that. And it's up and down depending on promotions and given geographic areas from time to time. We'll see a competitor put on a heavy promotion in something like adult nutrition in the U.S., and it goes away. Share doesn't change much in that case. But long-term sustainable growth here. We continue to maintain our position as the market leader and even advance it in a number of cases. So I feel like it's pretty solid and look forward to it staying at a, call it, a mid-single-digit level. With regard to Libre, we can't be anything but pleased. It's going extremely well. We're on track with where we want to be in terms of patient…

All right. And just another quick focus for me was the neuromod focus for the quarter. I mean, you're kind of anniversarying some fairly explosive growth in that business. But can you just discuss the relative change in neuromod growth this quarter, the drivers of it, what you're doing to address it? And do you believe this portfolio can get back to market growth?

Yes, good question. I think you've got a couple of things going on here, one of which you observed. Explosive growth last year, which is actually interesting part of the problem, I think this was a bit of a self-inflicted wound. We did -- this is a business where the business is very dependent on the involvement of the representative, the sales representative, et cetera, not only with the physician but also with the patients. And we did not expand our sales force in concert with the rate of explosive growth we experienced. And when we finally did expand our sales force recently, it turns out to be pretty disruptive to do that the way we did it. And I'd say the issue we created for ourselves was disruption in our own sales here with the additions of new salespeople and new service people in the field and so forth. You recut territories, you have a lot of training and so forth. So I think we've added to our comp issue here. So do I think it gets back to market growth? Yes, absolutely. I think this is a temporary condition created by us. It will be fixed by us, and we'll figure out how to successively expand our sales force in concert with our growth in a, let's just call it a much smoother fashion in the future. I think we did this to ourselves.

And our next question comes from Larry Biegelsen from Wells Fargo.

So it looks like based on the guidance, you're forecasting similar growth in the second half once -- adjusting for the Indian GST benefit that we saw in EPD in the first half. So I guess my question is, Miles, why do you feel confident you can sustain similar underlying growth in the second half given that the comps get significantly tougher in the second half? And I had a follow-up.

Well, first of all, the underlying dynamics of our markets underlying are pretty strong. Our single biggest, I guess, forecastable -- or not forecastable concern, is currency. And I think you're going to hear that from a lot of companies. I think we're all seeing a stronger dollar. And in our case, I'll speak for us, we have a significant portion of our business in high-growth markets, most of which are unhedgeable currencies and are volatile currencies, emerging markets, et cetera. And we like the growth and we like the underlying trends and dynamics of those markets, and I think those have proven to be pretty robust and beneficial. But they also come with the unpredictable volatility of currency from time to time. So as I said in my opening remarks, we'd probably be raising guidance even further here, but for currency headwinds that we see for the remainder of the year. And having been through this cycle a number of times, you're always cautious about the second half of the year until you get to about now and see what the currency is doing because the first half of the year, you think you know what it's going to do, but you really can't predict that far out. And it's clearly made a big change since the first quarter. So we've absorbed a fair bit of that negative currency headwind already, and we'll probably end up absorbing more here in the second half. But we think we've got a pretty good handle on what we face. But the underlying dynamics of the real business are all pretty good. Now that said, things never go exactly like you except them to go. And you take a business like our pharmaceutical business, it's lumpy. It's got -- if you've got a…

That's helpful. And then for my follow-up, I had to follow up on David's question. Within med tech, there was some pockets of strength like Diabetes and Electrophysiology, but there were a couple of soft spots, like CRM. You've already addressed Neuromodulation and Heart Failure. So any more color on CRM and Heart Failure, how we should be thinking about those segments in the second half of the year?

Yes, there's a couple of dynamics going on with CRM. That one gets a fair amount of my attention, I would tell you. First of all, we got a little bit of a tough comparison to last year because we launched the low-voltage MRI-compatible products then and obviously, had stocking dynamics in the second quarter and so forth. But beyond that, there's also sort of an underlying battery replacement timing thing going on here because when St. Jude, prior to us in '15, '16, had its battery issues, it pulled forward a lot of replacements and -- to replace those batteries. And so you see fewer replacements now because they were pulled forward. Whereas, in the de novo segment, where we got new patients, we're doing extremely well. So when you kind of take it apart, you look at it and say, "Well, if we're right about our diagnosis and analysis here, we should see this pick up in the future with a bit of a tailwind once we get past this replacement phenomenon relative to 2016." So we've looked at that. I think for the rest of this year, we're probably flat in CRM, but that's not a satisfactory position for us. So my expectation is we keep improving the growth rate here. We're not happy with what the growth rate looks like, but we think we understand why. With regard to Electrophysiology and others, geez, they're doing great, as you pointed out. Heart Failure, we need a destination therapy claim, and I think we're going to be in great shape. I think it's that simple.

And our next question comes from Bob Hopkins from Bank of America.

I just have 2, one kind of big picture and one on a divisional level. From a big picture perspective, I think you guys have been very clear on the topic of durable revenue growth. I have a question on durable earnings growth. And the reason I ask the question is that your earnings growth has obviously been running well above your targets. As we go forward, if you're successful in driving the kind of revenue growth you think you can drive in this business, what does a durable earnings growth outlook look like for the company? Is it closer to 15% than 10%? Just any thoughts on that topic would be appreciated.

Many times in these calls, somebody tries to get me to forecast future earnings growth, and I think we start every year with a goal of, in fact, even a long term of double-digit earnings growth. And that -- you might say, well, that sort of backs you into 10% or 9.999% or whatever. And we don't necessarily hit it every single year, but pretty darn close. In some years, it's a lot more than that. So I would tell you that our overall strategy is we want to grow at a double-digit rate. Otherwise, difficult to call yourself a growth company. We got a lot of pieces in this company. We've tried to position it in growth markets, growth segments, growth products, innovative areas and so forth. And we also have some extremely profitable cash-generating legacy businesses that grow slower, but they're still growth. And those businesses, we do look for incremental growth and the kind of delivery of profit that's above the sales growth rate. And overall, that mix has to deliver that double-digit target for us, which is why we've shaped the company as we have over the last 6 years to add growth and prune away some things that may not fit us over the long term. We've tried to put ourselves in the right geographic markets, the right innovative spaces, the right growing health care areas and so forth so -- we've talked about. So -- and we always look for leverage on the bottom line by improvements in margin, gross margin, even our spending efficiency and so forth. So I don't know that I can predict whether it's 10%, 11%, 12%, 13%, 14%, 15%. But I can tell you, we start every year with the presumption, that's our identity, that's our hallmark, that's the…

Fair enough. But I appreciate the detailed answer. And then one other thing I wanted to touch on really quickly was just if there's one business that seems like it's really done better than you thought at the beginning of the year, it's maybe nutritionals. So I was wondering if you could just talk about what's driven the improvement and how sustainable that is.

Well, I think I'll go back to there's no one thing. Our markets are all a little different. You'd think that infant formula and Ensure wouldn't be that complicated, but it actually is at some level. And the dynamics of each market are a little different. And some -- we've got, in some ways, the same multinational competitors in most of our geographies, but even they don't have the same strategies or even the same products in every market. And then there's always a lot of local or regional competitors. And in a country like Vietnam, we had a very strong state competitor there in Vinamilk. A fine company, and they execute very well. They happen to be really strong in rural areas. We happen to be very strong in big cities. That's a dynamic that's unique to Vietnam. The dynamics we face in the Middle East or other markets in Asia are different. It's -- so it's no one thing, I'm afraid. We can try all those consultant 4-box matrices to sort of say all of these countries are like this and put them in the upper left-hand corner box and so on. But even doing that, that's artifice. It's -- each country is a little different. I'd say, overall, we needed to improve several things. The focus of our products. You can have too many. You can have too few. But you got to have certain ones, you got to have certain innovations, you got to have certain ingredients, and you got to have marketing that appeals to the consumers and/or physicians or hospitals that you're trying to appeal to. It's a little tailored to each market. We literally went country by country, call it, top 15 countries and went through a detailed analysis and new strategies and…

And our next question comes from Glenn Novarro from RBC Capital Markets.

Miles, 2 questions on Libre. First, can you give us a little bit more color on the U.S. rollout and where you are with commercial coverage? And are you still comfortable with your Libre guidance for the year, which, in the U.S., I think is $90 million to $100 million? And then I had a follow-up.

Yes. A real quick answer to that, yes, we're absolutely comfortable with the guidance for the year. I'd -- we're on track, Glenn. It's -- yes, I'd like to go even faster. As I've said before, we're even investing heavily in capacity expansion and so forth to anticipate even greater growth in the future. And I -- it's -- there's really nothing to compare it to. There's -- I think the whole space is getting increasing attention. And we have, as you know, carved out a very economic position that's extremely profitable for us, but we're in a very, let's call it, economically accessible price point, which has made the uptake and the reception by the patient or the consumer or even reimbursing bodies pretty attractive. And I think we found a real value proposition point here with the product. Our manufacturing is extremely automated. It gives us a big advantage in terms of cost. And everything is kind of working well here. I'm pretty excited about this product. This -- it's got so much potential because I think a lot of times, whether it's a pharmaceutical or medical device, et cetera, they can be expensive in the health care system for recovery of cost and so forth because the numbers of patients may not be that great. And yet, there's a lot of diabetics in the world, including me. And there's millions that are insulin-dependent and millions that don't want to be insulin-dependent, et cetera. This product hits the sweet spot. And to be a mass-market product, it's got to be accessible. It's got to be affordable. And it's got to be affordable in a way that it's not hard for people to commit to it, use it and find out what it can do for them and so…

And then let me just one quick follow-up. Can you discuss what's next in terms of features for Libre and timing?

I could, but I'm probably going to -- I'm probably not going to set any expectations around that because I don't want to create trigger points or talking points or whatever -- catalyst. I don't know all the terms you guys like to use. There are a number of things that we have planned in place, done the work, et cetera, for enhancements to the product, obvious ones, some of which are already available overseas. It's a little different challenge working through the FDA here in this country. And so I don't want to get into the space, but -- or the discussion. But yes, we got plenty of enhancements and thoughts here for advancing the product still further, Glenn.

And our next question comes from Rick Wise from Stifel.

Maybe starting off with a big picture question. You, in some of your earlier comments, sort of lightly touched on this. But when we think about your priorities right now, should we imagine that you're focused, now that everything is coming along, should we expect you to be largely focused just on continued execution with the portfolio you have? Or do you think the portfolio is in good shape as it exists? Or are you thinking about not just M&A? And of course, I'm always interested in hearing about your interest in opportunistically adding technology or inorganic growth. But with your existing portfolio, are you more -- now more aggressively looking at the pieces you have and thinking you might be more actively thinking about trading out, the net benefit of which would be to enhance growth and/or margin? Both ways, in and out.

I get this question in one form or another on every call and every visit to investors and so forth, and it's always a fun, speculative question. But the honest answer is, look, I think we did some very deliberate shaping of the company, let's say, since the AbbVie split over the last 6 years. And that's not been accidental or reactive or opportunistic. It's been with intent and a plan and so forth. At this point, I also think companies can get a little too transactionally oriented. Everything is a transaction as opposed to you got to run it and run it well. So philosophically, here's how we operate. Our first baseline is we've got to operate and execute well organically as a company. I know it's a word we've used a lot today, but I want to make a distinction between what we do as part of the ongoing operating of the company versus transactions one way or the other. And our whole goal has been to establish the company with its own internal growth drivers, productive R&D, productive innovation, productive positioning in the right markets, the right segments, the right growth things because our investors expect us to make them money and do well with their investment and grow the company. So we position ourselves pretty deliberately and intentionally in those kinds of spaces across the board. I don't know that you're ever done and I don't know that you ever feel totally comfortable. You shouldn't, but I think we're in a pretty good place that way. We've got a lot of what I would say was our intentional repositioning done. That means for us that we got to integrate it all. We've pretty much done that. I mean, the integrations of St. Jude and Alere, pretty…

Yes. Appreciate that comprehensive answer. Just last for me. You had a couple of notable...

That means I talk too much, right, Rick?

I would never say that, Miles. No, really, it was very helpful. You had a couple of notable new product approvals this quarter, the next-gen MitraClip and XIENCE Sierra. XIENCE Sierra is coming in the context to a vascular business that did slightly worse this quarter than the first quarter. Structural Heart, obviously, incredibly strong, accelerated. Just -- so maybe a little color on what we should think for MitraClip. Does the bigger reach open up more procedures? Does it accelerate growth? Does XIENCE Sierra get you back on track in Vascular? I'll stop there.

Okay. Sure, thanks for the question, Rick. Yes, I think MitraClip definitely opens up to more patients just because of the size changes and so forth that we've got more flexibility with that product. And any time you can do incremental improvements of products and enhance them further, you're extending their reach, extending their life, their -- the competitiveness, et cetera. So I think all that's good for our Structural Heart business, and then we got more things in our pipeline coming. The XIENCE Sierra, okay, early returns in Europe. Excellent and performance excellence. I think same with Japan. We've just launched in the United States, so all I've got is anecdotal feedback. The U.S. and Japan and Europe, they're not the same, but they're close. So I expect Sierra to do well in the United States. When you say, "Will it get you back on the track?" I think the track in the stent business is the low single digits at best. I don't think -- there's always a lot of competition in this business. We've talked about that. There's 3 or 4 pretty strong competitors here. I think the market has kind of said, look, the multitude -- the magnitude or the base magnitude of innovation has been had. There's incremental improvements we can all make, but it's a very competitive space. So I think being on track here is low single digit. And that's at least right now what I'd kind of expect out of this. And I expect XIENCE Sierra to claim its share of the market, do well, be more than competitive, and we'll see that. We're seeing it in Europe. We're seeing it in Japan. So I expect to see it in the U.S., too. But I don't think this is a space where there's gigantic quantum leaps in offerings. But it's one of those very strong, very profitable important legacy cornerstones of the device business that's important for us to maintain our leadership in and our competitive position in. And I think XIENCE Sierra definitely kind of puts us back on that track.

And our next question comes from Joanne Wuensch from BMO Capital Markets.

Can we spend a moment or 2 looking at the Diagnostic business? Alinity has been launched in Europe for over a year. It's rolling out in the United States now. How should we think about that contributing and also the whole business holistically now that Alere is part of it?

Well, Joanne, Alere is part of the Diagnostics business, but it's not integrated in the core lab business. What we got here is kind of a collection of businesses by major segments. So I think -- and let me just take that last part first. I think the space that Alere expands us in, point of care and your patient testing, distributed testing, et cetera, which is also kind of a collection of spaces, I think we're in a very strong position. One of the things we'd like to do, obviously, is renew or update or enhance a number of products and so forth, and others put a lot more in innovation and R&D there. But we've got, I think, a very, very strong portfolio. Right now, I'd call it a stable portfolio that's at a low growth point, but that's not where we ultimately expect it to be. And since the time we acquired Alere, we've said for a while here, that's not going to be a high grower, but we expect it to be, and we do. And I'd tell you that so far, everything that you'd have to do to integrate a business, make it part of the company, put management in place that hasn't been there before, and so that's all gone exceptionally well, way faster than we might have thought. So we're really pleased with that business. We're really pleased with it in the portfolio. We're super pleased with how the management team there is doing. All good. All good all day, and we look forward to its contribution to our growth and innovation over the future here because I think that's exactly what it's going to do. Back to Alinity, there's a couple of things to kind of understand about this space or spaces.…

And my follow-up question is on your MitraClip franchise. We have the next generation product, which was just FDA-approved, and the COAPT trial reading out in September. Can you just give us an update on where that business is?

Yes. I'm going to ask Scott to help me with that, Joanne.

Yes. With respect to MitraClip, you can see the performance in the numbers there, and Structural Heart is doing quite well. We will get a read-out rate out on the U.S. COAPT trial data later this year, very likely at the TCT Conference in September. So that will be a big event for us. We're also doing quite a bit with respect to geographic expansion as well. We received national reimbursement in Japan here in the second quarter. That's a nice opportunity for us, too. That market is quite sizable. So MitraClip is hitting on all cylinders with a lot of growth in front of it.

So Joanne, I'd wrap up. I like the way Scott wrapped that up. It's hitting on all cylinders. Obviously, in a company our size and diversity, everything doesn't hit on all cylinders all the time. But I'd say right now, I think for the markets we have and let's call it, the exchange and the currency volatility we've all got out there and so on, I think the company is performing exceptionally well and feel pretty good about all the underlying performance and the strength going forward here.

And our final question comes from Chris Pasquale from Guggenheim.

Miles, just a couple quick ones here for me. One on the EPD business and the situation in Russia, I think you had previously said you still expected that to be a headwind in 2Q. Did that come back earlier than expected? And then just quickly on Diagnostics, the legacy Abbott Point of Care business has slowed a little bit over the last few quarters. Is that a function of the integration work being done there? Or is there something else happening?

Well, let me take the Point of Care first. Yes, there's a couple things going on there, and I'd say a little bit of it in integration. We had a number of management changes because we were populating the new Rapid Diagnostics business. So we had a lot of new over new over new there, and we may have lost touch with ourselves a little bit in the transition. And yes, there's a couple customer dynamics, big accounts and so forth, where we had some challenges that have since been addressed. So I expect that to improve. I don't think that's a long-term condition. But yes, we've had a couple of, let's just call it, slip-ups here that slowed our growth rate. And I think we'll be seeing that come back to much healthier growth rate. With regard to Russia and EPD, I'm going to get a little bit of help here from Scott and Brian. But generally, I'd say, look, yes, it's as predicted. I think it's -- we're seeing the cycle pass through here in the second quarter, but I don't know that it's completely done. But everything we kind of thought would play out is or has. And so we're seeing that come back to, let's call it, a better position. You guys can add anything.

Yes. I would just add, our end customer demand remains in line with our expectations. We're tracking that. And I'd say, this quarter, we actually returned to growth in Russia, which is a good sign based on the stabilization we're seeing and how the destocking has progressed as we had planned thus far.

I'm actually kind of surprised we got it that close. Usually, you try to break these things and you're never right. And it's actually turned out to be more right than we thought.

Well, thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of the call will be available after 11 a.m. Central Time today on Abbott Investor Relations website at abbottinvestor.com. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.